Schaff Trend Cycle (STC) indicator
The STC also provides buying and selling signals and pinpoints entry and exit points. It is a combination of stochastic and the moving average convergence/divergence (MACD) that minimizes the choppiness during trends and is more quick and efficient in responding to price actions.
Key
- Schaff Trend Cycle is a charting indicator used to help spot buy and sell points in the forex market.
- Compared to the popular MACD indicator, STC will react faster to changing market conditions.
- A drawback to STC is that it can stay in overbought or oversold territory for long stretches of time.
What is the STC indicator?
The decreasing values of the STC indicator indicate the falling trend cycle while the prices being stable or may follow the cycle to the downside. On the other hand, the decreasing values of the STC indicator suggest an uptrend while prices being stable or may follow the cycle to the upside.
The strategy suggests buying when it surges above 25 level and sell when the signal lines go below the 75 level. When the indicator lies between the two thresholds, it indicates that the trend is strengthening in either of the two directions.
MACD helps to predict price actions but it has some lagging issues because of its slow responsive signal line.
The STC indicator can only turn into a straight line when it is in the territory of the uppermost or lowermost points. When the STC indicator’s straight line is above 75 line, it means overbought market condition. On the other hand, if the straight line is below the 25 line, it indicates oversold market conditions. In both of these conditions, there is a strong possibility of a trend reversal, however, the indicator does not provide an exact timeline.
STC Isn’t Perfect
Namely, it can linger in overbought and oversold territory for extended periods of time. For this reason, the indicator is most often used for its intended purpose of following the signal line up and down, and taking profits when the signal line hits the top or bottom.
The majority of them believe that it is viable to close when the STC indicator turns into a straight line. It faces problems during overbought or oversold extended periods. Therefore, experts always advise using the STC indicator in combination with other similar indicators for confirmation.